World: Governments Take Action To Curb Rising Food Prices, But At What Cost?

(AFP)
Skyrocketing food prices have sparked protests around the world, as well as riots in places like Egypt.

The World Bank says wheat prices have doubled since 2000. Since January this year alone, rice prices have shot up 20 percent.

There are several reasons -- record-high oil prices, growing demand from countries like China, and bad weather like a recent drought in wheat-growing Australia. And then there's the rise of biofuels -- more and more land has been given over to crops grown not for food, but for fuel.

As a result, stocks have fallen to their lowest levels in decades. So it's no surprise that governments, especially in the developing world, are feeling the pressure to act.

Some 20 countries -- including Russia, Kazakhstan, and China -- have introduced price controls on staple items such as bread, milk, and cooking oil, while many countries have introduced export curbs.

Concepcion Calpe of the UN's Food and Agriculture Organization (FAO) says they include most major rice exporters. "Egypt just came up with a six-month ban on exports, you have India which will not export below a minimum price of $1,000 [per ton], Cambodia is already imposing some restrictions, China is imposing a 5 percent tax on exports, there is a whole array of measures being taken by exporting countries," she says.

Passing On The Problem

"They have been the most active to react to the high prices precisely because they have very little reserve in their stocks, so they want to make sure that by exporting they will not face shortages themselves in the next few months," Calpe notes.

But economists warn that these measures can cause problems, too. For one, export restrictions can actually cause world prices to rise -- as happened with rice this year.

And Calpe says export curbs, though understandable, pass the problem on to rice-importing countries. "They have opened up their borders to imports and have learned to rely on imports to feed their populations," she says. "Now with all these export restrictions they find themselves caught in a situation where they don't produce the stuff any more and it's not available on the international market to buy, or if it is it's at prices that are so high they can no longer afford them."

The export curbs could also store up problems for later on. So says the World Bank, which warned earlier this year that export bans "unfairly penalize" producers and might encourage smuggling and corruption.

Another recent study, cited by the European Bank for Reconstruction and Development and the FAO, says bread and flour prices in Ukraine actually rose despite the introduction of wheat-export quotas, and that grain producers and traders suffered huge losses.

As for price controls, the same report says that while they might keep some prices down, they can also leave some producers bankrupt and so trigger shortages.

So what can be done? The World Bank says a more "appropriate policy response" is for countries to provide direct subsidies to the hungriest while allowing exports to continue freely.

Some countries are seeking bilateral deals with exporting nations to guarantee supplies. But with scarce supplies, some countries risk losing out. Others expect that high prices will eventually lead to increased production -- which will, in turn, bring down prices.

Paul Braks, a commodity analyst at Rabobank, which specializes in food and agribusiness banking, says high prices are a real incentive for farmers to grow more.

"Millions of hectares of land can be taken into production, for example in the former Soviet Union 25-30 million additional hectares of agricultural land can be taken into production," Braks says. "But also yield, output per hectare can grow substantially, for example in the former Soviet Union the yield per hectare is 1 to 2 tons per hectare while here in Western Europe it's closer 8 tons per hectare. So there's still lots to be gained, and as a result production can grow and have a downward pressure on prices in the long run."